Can an Arkansas city assign its paramedics to work at a private company in exchange for an hourly fee?

Plain-English summary

Senator Eddie Cheatham asked the AG to evaluate a 2012 contract between the City of McGehee and Clearwater Paper Corporation. Clearwater operates a pulp and paper mill outside Arkansas City in Desha County. Under the contract, the city dispatched its fire-department, paramedic, and ambulance staff to the mill on a temporary, as-needed basis. Clearwater paid $27.50 per hour for each city employee plus 1.5x on holidays. A third-party administrator billed Clearwater $150 a month to handle scheduling.

Two questions: did this violate Article 12, Section 5 of the Arkansas Constitution (the no-aid-to-private-entities clause), and did it satisfy the public-purpose doctrine?

On Article 12, Section 5, the AG said probably no violation. The clause forbids cities from giving money or aid to a private corporation. But it does not forbid contracts between cities and private parties supported by adequate consideration. McGehee was being paid $27.50 an hour. That looked like a real exchange of consideration, even though the AG noted that adequacy of consideration is ultimately a fact question.

On the public-purpose doctrine, the AG was much more skeptical. Arkansas requires every public expenditure (including contracts) to advance "the welfare of the community and its inhabitants." On the face of the documents, McGehee city employees were being deployed to fill "the temporary first-aid needs of Clearwater Paper as identified by Clearwater Paper" at a mill outside the city limits. The contract gave Clearwater significant control: substance abuse policies, requirements that staff not work alone unless trained by Clearwater nurses, and so on. The AG could not see how this benefited McGehee residents. The opinion explicitly distinguished this arrangement from sheriff-deputy-to-private-community arrangements (which have express statutory authorization) and from ordinary cases where cities contract out for emergency medical services that they then provide to their own residents.

The AG noted a separate concern: the contract obligated McGehee to cover salaries, overtime, taxes, social security, and benefits for the assigned employees, plus indemnify Clearwater for non-payment claims. That could result in McGehee needing more tax money than originally appropriated, raising a potential illegal-exaction problem under Pogue v. Cooper.

Currency note

This opinion was issued in 2017. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

Two separate constitutional limits operate on Arkansas municipal contracts with private parties.

The first is Article 12, Section 5: "No city ... shall ... obtain or appropriate money for, or loan its credit to, any corporation, association, institution or individual." The Arkansas Supreme Court reads this to bar both direct donations and indirect "financial aid" from a city to a private entity. Halbert v. Helena-West Helena Indus. Dev. Corp. prohibited a city from purchasing membership in a local industrial development corporation as "doing indirectly what the Constitution forbids to be done directly."

But contracts supported by adequate consideration are not "donations." City of Harrison v. Boone County affirmed that "[b]oth the city and the county have the power to enter into contracts." And City of Fort Smith v. Bates held the constitutional clause is not "a limitation on the ability of the municipal corporation to acquire private property ... in exchange for fair and equitable consideration."

The second limit is the public-purpose doctrine, which the AG described as a "minimal safeguard" against using tax dollars for private ends. The doctrine deferred to legislative determinations of what counts as a public purpose, but courts retained the final word. Turner v. Woodruff explained that "great weight must be given legislative determinations" but the judiciary ultimately decides.

Arkansas grants cities broad statutory authority "to perform any function ... pertaining to [their] municipal affairs," which includes "[m]atters of public health that concern emergency medical services, emergency medical technicians, and ambulances ... and ambulance companies" (Ark. Code Ann. §§ 16-43-601, -602). On its face, EMS provision is a municipal affair. But the AG was unable to conclude that providing EMS at a private mill outside the city limits qualified.

The opinion also distinguished an Ark. Code Ann. § 14-15-503 sheriff-deputy-to-planned-community arrangement, which has express statutory authorization, county-wide jurisdiction, and a recognized public purpose (law enforcement of all county residents). McGehee's contract had none of those features.

Common questions

Was this contract a donation of public resources to Clearwater? The AG said probably not, because Clearwater was paying $27.50 an hour. That looked like consideration. But the AG also flagged that adequacy of consideration is a fact question.

Did the contract serve a valid public purpose?
The AG could not say. From the documents, the work appeared to fill Clearwater's private needs at a private site outside city limits, with Clearwater largely controlling the work. That did not obviously benefit McGehee residents.

What was the illegal-exaction risk?
The contract obligated McGehee to cover salaries, overtime, taxes, Social Security, insurance, workers compensation, and benefits for assigned employees. In footnote 39, the AG cited Pogue v. Cooper, which rejected county employees’ work for private interests despite profit from those services. She said a possible need for more tax money to cover McGehee’s obligations could support an illegal-exaction challenge.

Could a city ever lawfully provide first-aid staff to a private business? Possibly, if a real public purpose were established. The AG hinted at a possible analogy to the sheriff-deputy precedent, but emphasized that arrangement has explicit statutory authorization (§ 14-15-503), countywide police authority, and a recognized public-safety purpose. None of that applied here.

Could a city and a private company structure this differently? The AG didn't redesign the deal, but pointed to Ark. Code Ann. § 14-54-704, which lets cities contract for emergency medical services to be provided to "the inhabitants of any municipality" through a private vendor. That flips the role: the private party serves city residents, not vice versa.

Source

• Landing page: https://arkansasag.gov/divisions/opinions-foia/attorney-general-opinions-search/

Original opinion text

STATE OF ARKAN SAS
ATTOR N EY GE N ERA L
LES LI E RU T LEDGE

Opinion No. 2017-088

November 15, 2017

The Honorable Eddie Cheatham
State Senator
2814 Ashley 239
Crossett, AR 71635-8824

Dear Senator Cheatham:

This is in response to your request for an opinion concerning a city's authority to assign public employees to provide emergency-medical services on an as-needed basis to a private entity. You explain that the city and the private entity have entered into a contract, pursuant to which the private entity pays $27 .50 per hour for each city employee who provides emergency-medical services, in addition to 1.5 times this rate for hours worked on certain holidays. The private entity also pays a third-party administrator $150.00 per month to coordinate the city employees' schedules with respect to the entity' s staffing needs.

You forwarded the relevant contract between the City of McGehee ("City") and Clearwater Paper Corporation ("Clearwater"), which operates a pulp and paper mill on the outskirts of Arkansas City in Desha County. This contract, entitled "Independent Contractor Agreement," is dated April 17, 2012. It appears to have been executed by the City' s Mayor and Treasurer. The primary contract is five pages long; it incorporates a four-page "Contractor Substance Abuse Policy" and a one-page "Contractor Employee Consent Form." I have reviewed the Independent Contractor Agreement and its attachments (collectively, the "Contract"). I have also reviewed portions of the "Regulatory Basis Financial Statements and Other Reports," dated December 31 , 2016, supplied to the City of McGehee by the Legislative Joint Auditing Committee.

You asked two questions based on this information, which I have slightly paraphrased:

323 CENTE R ST REET , SU ITE 200 · LI TTLE ROCK, ARKAN SAS 7220 I TE LEP H ONE (501) 682-200 7 · FAX (50 1) 68 2-8084 ARKAN SAS AG.GOV
The Honorable Eddie Cheatham
State Senator
Opinion No. 2017-088
Page 2

Question 1: Does the Contract violate Ark. Const. art. 12, § 5?

Question 2: Does the Contract satisfy the public-purpose doctrine?

RESPONSE

Answering these questions requires contract interpretation and an assessment of the facts and circumstances surrounding the contracting parties. Matters of contract law are beyond the scope of my authorized power under Ark. Code Ann.
§ 25-16-706 ("Opinions upon request") (Repl. 2014). 1 And section 25-16-706 does not authorize an investigation into the course of dealing and course of performance between two parties, which is necessarily a fact-intensive undertaking. 2 Indeed, as a general matter, I am not authorized to act as a fact- finder in the course of issuing Attorney General opinions.

Your questions involve legal concepts that are robust and well established in Arkansas, however. I can therefore respond in a general manner, subject to the important statutory limitations identified above.

In my opinion, the Contract likely does not violate art. 12, § 5 because it appears to be a valid agreement supported by adequate consideration. However, any contract involving an appropriation or expenditure of municipal funds must further a public purpose. Based on the documents you have submitted, it is not clear that the Contract advances a public purpose with respect to the City. But I emphasize that neither question can be resolved purely as a legal matter. Fact-finding will be necessary to provide definitive answers.

DISCUSSION

Question 1: Does the Contract violate Ark. Const. art. 12, § 5?

1
See also Op. Att'y Gen. 2016-013 ("Although I am statutorily directed to render formal opinions on questions of state law submitted by specified officials, the construction of a contract is generally beyond the scope of an Attorney General opinion."). 2 See Op. Att'y Gen. No. 2017-028 ("The fact finding required ... is beyond the scope of an Attorney General's opinion."). The Honorable Eddie Cheatham State Senator Opinion No. 2017-088 Page 3

To the extent that I am statutorily permitted to opine, I believe the Contract more than likely does not violate art. 12, § 5. 3 Essentially, art. 12, § 5 prohibits private individuals or entities from receiving donations of municipal property. The threshold issue, therefore, is whether the recipient of an alleged municipal gift is a private individual or corporation. If the recipient is a public entity, then art. 12, § 5 does not apply. 5

Article 12, section 5 prohibits direct donations as well as any "financial aid" flowing from a municipality to a private corporation. 6 Thus, the Arkansas Supreme Court reasoned that for a municipality to "purchase membership in a local industrial development corporation ... would be doing indirectly what the Constitution forbids to be done directly." 7 Likewise, my office has opined that art. 12, § 5 probably prevents a city from purchasing gift cards for individuals who served as volunteers. 8

However, art. 12, § 5 does not prevent contracts between municipalities and private parties, so long as the agreements are supported by adequate 3 In relevant part, Ark. Const. art. 12, § 5 (Rep!. 2015) states that "[n]o city ... shall ... obtain or appropriate money for, or loan its credit to, any corporation, association, institution or individual." 4 See generally City of Jacksonville v. Venhaus, 302 Ark. 204, 210, 788 S.W.2d 478, 481 (1990) (holding that the Arkansas Constitution "forbids . . . municipal funds to be given to any corporation, association, institution, or individual."); accord Op. Att'y Gen. 2002-099 ("[A] county may never give public property to a private, nonprofit corporation."). 5 See, e.g., McCutchen v. Huckabee, 328 Ark. 202, 213, 943 S.W.2d 225, 230 (1997) (holding that "facilities boards are not the type of ... association ... contemplated by Article 12, Section 5," but are instead "agencies created by the counties to carry out various county activities."); accord Op. Att'y Gen. 2012-051 (opining that art. 12, § 5 "focuses exclusively on the requirement that the recipient be 'public' in a way that removes him or it from the list of proscribed recipients set forth in the constitutional text."). 6 Halbert v. Helena-West Helena Indus. Dev. Corp., 226 Ark. 620, 291 S.W.2d 802 (1956); accord Op. Att'y Gen. 2012-066 (Article 12, section 5 "memorializes, with respect to local government, the general principle that no government can use public resources for private purposes.") (internal citation omitted). 7 Halbert, 226 Ark. at 625, 291 S.W.2d at 806 (internal quotation omitted).
8
Op. Att'y Gen. 2015-141 (noting that the "limited facts point to the conclusion that the gift cards were given as private benefits."). The Honorable Eddie Cheatham State Senator Opinion No. 2017-088 Page4

consideration. 9 As the Supreme Court noted when considering whether a city was authorized to build a driveway onto a private lot, art. 12, § 5 is not "a limitation on the ability of the municipal corporation to acquire private property ... in exchange for fair and equitable consideration." 10 Rather, "[b]oth the city and the county have the power to enter into contracts." 11

Clearwater "operates a pulp and paper mi11" 12 as a private corporation, so its use of City employees as temporary first-aid staff is subject to review under art. 12, § 5. As such, the City could not simply "appropriate" its employees' time and labor to perform services in this capacity. 13 On the face of the Contract, however, it appears that Clearwater and the City agreed to an exchange of consideration that brings their staffing arrangement outside the prohibition on donating municipal funds.

The Contract refers to "mutual promises set forth herein," 14 specifically a promise by Clearwater to pay the City "twenty-seven dollars and 50 cents ($27.50) per hour for each Staff member provided at the request of Clearwater Paper." 15 And the City promises to "provide Clearwater Paper with temporary first-aid staff ... as needed by Clearwater Paper." 16 The City likewise agrees to "provide Clearwater Paper with a monthly invoice that will include each of the names of the Staff, the

9
See City of Harrison v. Boone County, 238 Ark. 113, 378 S.W.2d 665 (1964). As explained in response to your second question, a municipal-private contract must nevertheless satisfy the public-purpose doctrine. See generally Op. Att'y Gen. 2017-035 (discussing public-purpose doctrine in context of radios to be supplied to by a county to a private, gated community). 1
°City of Fort Smith v. Bates, 260 Ark. 777, 781, 544 S.W.2d 525, 527 (1976). 11 City of Harrison, 238 Ark. at 114, 378 S.W.2d at 666; cf Ark. Code Ann. § 14-58-303(a) (Supp. 2015) ("In a city ... , the mayor ... shall have exclusive power and responsibility ... to make all necessary contracts .... "). 12 Independent Contractor Agreement, p. 1.
13
Art. 12, § 5.
14
Independent Contractor Agreement, p. 1.

15 /d.,p. 1,~6.

16 Id., p. 1, ~ 1.
The Honorable Eddie Cheatham
State Senator
Opinion No. 2017-088
Page 5

hours worked, and the total amount of money owed." 17 Although adequacy of consideration involves questions of fact I cannot definitively answer in an opinion, 18 the staffing arrangement described in the Contract appears to have resulted from a valid exchange of "mutual promises." Because the City probably has not donated municipal labor to a private entity, the Contract likely does not violate art. 12, § 5.

Question 2: Does the Contract satisfy the public-purpose doctrine?

The consideration supporting the Contract may bring the agreement outside the scope of art. 12, § 5. But the agreement is also subject to the public-purpose doctrine, which requires that all public transactions (including contracts) advance the "welfare of the community and its inhabitants." 19 The public-purpose doctrine acts as a minimal safeguard against the misapplication of tax dollars toward private ends. 20

The judiciary ultimately decides whether a transaction meets the public-purpose test, but "great weight must be given legislative determinations." 21 In other words, short of unusually extreme circumstances, the judiciary will defer to legislative (and municipal) determinations of "[w]hat constitutes a public purpose .... " 22 Where a statute expressly authorizes the governmental activity in question, identifying a public purpose is relatively simple. Without a directly applicable 17 Id., p. 2, ~ 7.
18
See, e.g., Erickson Supply & Const. Co. v. Boyles, No. CA 89-83, 1989 WL 105955, at *2 (Ark. Ct. App. Sept. 13, 1989) ("Whether the ... consideration has failed to such an extent to warrant rescission is ordinarily a question of fact."); Op. Att'y Gen. No. 2002-099 ("I am neither authorized nor equipped to opine whether the ... agreement ... would be supported by adequate consideratioh under this standard. Only a finder of fact could make this determination .... "). 19 McQuillin, Municipal Corporations,§ 12, 213.
2
° Chandler v. Board of Trustees of Teacher Ret...~vstem, 236 Ark. 256, 258, 365 S.W.2d 447, 448 ( 1963) ("[T]he State cannot, within the limits of due process, appropriate public funds to a private purpose."); see also Barker v. Frank, 327 Ark. 589, 597, 939 S.W.2d 837, 841 (1997) (stating that Arkansas citizens may file illegal-exaction suits premiseci on the "misapplication of public funds."). 21 Turner v. Woodruff, 286 Ark. 66, 72, 689 S.W.2d 527, 530 (1985).

22 Id.
The Honorable Eddie Cheatham
State Senator
Opinion No. 2017-088
Page 6

statute, a large and varied number of factors may be relevant to whether a transaction furthers the welfare of the community. 23

Arkansas cities are authorized by statute "to perform any function ... pertaining to
[their] municipal affairs." 24 Included in the definition of "municipal affairs" are those "[ m]atters of public health that concern emergency medical services, emergency medical technicians, and ambulances ... and ambulance companies." 25 Because the Contract calls for the City to provide employees from its "fire department, paramedic, and ambulance service[ s]"26 to work as "temporary first- aid staff,"27 the agreement generally correlates to one of the "municipal affairs" that a city can pursue in the name of public health. 28

But while an agreement for emergency-medical services could potentially further a public purpose, it is unclear based on the contract (and other documents provided) whether this particular agreement furthers a public purpose, or rather simply furthers the private interests of Clearwater. Under the Contract, City employees participating in the staffing arrangement "fill all of the temporary first aid needs of Clearwater Paper as identified by Clearwater Paper." 29 Participating City employees are "temporarily assigned to Clearwater Paper." 30 They must consent to a substance-abuse policy that applies to "businesses which have contracted to perform work or services" for Clearwater. 31 And they cannot "work alone unless

23
See Op. Att'y Gen. 95-038 (noting that "a court would examine all the attendant facts and circumstances in making a determination ... of the purpose" behind the contract).

24
Ark. Code Ann. § 16-43-602(a) (Rep!. 2013). This includes the authority to enter into contracts. See Ark. Code Ann. § 14-58-303 ("Purchases and contracts generally.").

25
Ark. Code Ann.§ 16-43-601(b)(l) (Rep!. 2013).

26
Independent Contractor Agreement, p. 1.

21 Id., p. 1, ~ l.

28
Cf Op. Att'y Gen. 2009-002 ("[P]rovision of emergency medical services, whether directly or by contract, clearly falls within the powers of a county government.'').

29
Independent Contractor Agreement, p. 2, ~ l O; see also id., p. 1, ~ 1 (participating City employees made available "as needed by Clearwater Paper.").

Id., p. l, ~ 4.
30

31
Clearwater Paper Corporation Contractor Substance Abuse Policy, p. l.
The Honorable Eddie Cheatham
State Senator
Opinion No. 2017-088
Page 7

... trained by a member of the Clearwater Paper nursing staff." 32 The focus of the Contract, and of the City employees' work, appears to be "the temporary first-aid needs of Clearwater Paper as identified by Clearwater Paper." 33

A city is authorized by statute to contract for "things to be furnished for the benefit of the city," and authorized to purchase only "things requisite for public purposes in and for the city." 34 Especiallfs given that Clearwater is located on private property in rural Desha County, 5 it is unclear at first blush how temporary contract employees working outside the city limits would benefit residents of McGehee. 36 It is important to note, however, that further facts might show that a true public purpose for this arrangement exists. I am not empowered to conduct such an investigation or make factual findings in connection with this opinion, and thus cannot conclude one way or the other whether a public purpose exists to justify the Contract.

The Contract can also be distinguished from agreements in which municipalities privatize some aspect of the munic:ipality 's needs. There is no dispute that it is 32 Independent Contractor Agreement, p. 2, ~ 11.

33
Id., p. 2, i\ 10.
34
Ark. Code Ann. § 14-58-303(a); cf Ark. Code Ann. § 14-52-104 (Rep!. 2013) ("Municipal police officers and city marshals shall have the same police powers on municipally owned or leased property located outside the corporate limits ... that they exercise within the corporate limits of the municipality.") (emphasis added).

35
Independent Contractor Agreement, p. 1 ("Clearwater Paper Corporation operates a pulp and paper mill located at Cypress Bend, near Arkansas City, Desha County, Arkansas.").

36
The Contract is distinguishable from an arrangement in which a sheriff, pursuant to his county- wide jurisdiction, furthers a public purpose by providing deputies for "employment [by] planned community property owners' associations" within the county. Ark. Code Ann. § 14-15-503(b) (Rep!. 2013). First, a sheriff is responsible for providing Jaw-enforcement services to all county residents as the "conservator of the peace in his county." Ark. Code Ann.§ 14-15-501(a) (Rep. 2013 ); accord Op. Att'y Gen. 95-03 8 ("[A] sheriff ... can fair be said to owe a law enforcement duty to all of the people of the county, including those residing within a planned community."). This authority is not confined to city limits or city-owned property. Second, the practice of supplying deputy sheriffs for use by private "planned community property owners' associations" is specifaally authorized at Ark. Code Ann.§ 14-15-503. Under such circumstances, the public purpose furthered by the county-level government is apparent. See Grits v. State, 315 Ark. 1, 864 S.W.2d 859 (discussing the arrest authority of deputies employed by planned community prope1ty owners' associations). The Honorable Eddie Cheatham State Senator Opinion No. 2017-088 Page 8

permissible under the public-purpose doctrine for cities to "provid[ e] ... emergency medical services ... for the inhabitants of any municipality" by means of a contract "with any person or company." 37 And it is proper (assuming an exchange of adequate consideration) for a private, non-profit organization to "employ[] people to perform work for the county's benefit." 38 But that does not necessarily mean the converse: that a private organization can pay a county, or a city, for public employees to work for that private entity. 39

CONCLUSION

The Car.tract seems to be supported by adequate consideration, to the extent I can address such a fact-intensive issue. Therefore, I believe that the Contract more than likely does not violate art. 12, § 5. However, the documents provided for my review raise a serious concern that the agreement might be inconsistent with the public-purpose doctrine. City employees are providing first-aid services for a

37
Ark. Code Ann. § 14-54-704(a) (Repl. 1998) (stating also that cities "may grant to the person or co'.npany ... the privilege ... of using the streets, alleys, and public grounds cf the municipality for such purposes ... .");accord Op. Att'y Gen. 2009-002 (opining that counties were authorized to "establish a subordinate service district and contract with un emergency care center to provide service within the boundaries of the district."). 38 Op. Att'y Gen. 20 i2 .. ()66 (considt~ring the constitutionaHty of a "summer youth employment program."). 39 Pogue v. Cooper, 284 Ark. 105, 679 S.W.2d 207 (1984); accord Op. Att'y Gen. 90-258 (citing Pogue for the proposition that "use of county property for private purposes is, generally, prohibited."). Likewise, although payment to the City of "twenty-seven dollars <ind 50 '~ents ... per hour for each [City employee] provided" could represent adequate consideration, these payments will not cure an underlying public-purpose defect. Independent Contractor Agreement, p. 1, ~ 6. For example, the Court in Pogue struck down use of county "employees to perform services for ... private interests," despite the fact that those services "were producing a profit." 284 Ark. at l 06, 679 S. W.2d at 208. The Court also noted the possibility of an iliegal exaction, given that the services provided to the private entity "could result in ~he need for more tax money'' than the municipality had origin1lly appropriated. Id. (internal quotation omitted). Here, the Contract obligates the City to p.iy "all salaries, overtime, taxes, sociai security, withholdings, insurance, workers compensation, and benefits earned by" City employees who provide temporary first-aid services to Clearwater. Independent Contractor Agreement, p. 1, ~ 2. The City must also "indemnify Clearwater Paper in regards to any issues of non-payment of wages earned or benefit owed to any of the lCity employees] once payment has been made by Clearwater .... " Id, p. 2, ~ 9. Inasmuch as "more tax money" might be needed to cover these obligations, the Contract could be challenged as a "potential illegal exaction[]." Pogue, 284 Ark. at 106, 679 S. W .2d at 208; accord Op. Att'y Gen. 98-129 ("[P]ayment of such increased benefits could be subject to challenge as an illegal exaction."). The Honorable Eddie Cheatham State Senator Opinion No. 2017-088 Page 9

private corporation at the request of that corporation (and to some degree, under that corporation's control). While further factual information could theoretically show a public purpose, such a purpose is not apparent from the face of the documents and information provided thus far.

Sincerely,

~l~
Attorney General